Morgan Stanley Says AIG May Sue Over Mortgage-Linked Investments

Nov. 5 (Bloomberg) -- Morgan Stanley, the sixth-largest
U.S. bank by assets, said it may be sued by American
International Group Inc. over mortgage-backed securities that
the insurer purchased before the financial crisis.

AIG bought $3.7 billion in mortgage pass-through
certificates that were sponsored or underwritten by Morgan
Stanley in 2005 through 2007, the New York-based investment bank
said yesterday in a regulatory filing. AIG terminated an
agreement that had given it more time to bring claims, and the
pact will end Nov. 7, according to the filing.

AIG, which repaid a government bailout last year, sued Bank
of America Corp. in August 2011 over $10 billion in losses on
mortgage-bond investments, saying it was the victim of a
“massive fraud.” Morgan Stanley has set aside $549 million for
litigation in the first nine months this year, up from $381
million in the same period last year.

“The company expects future litigation accruals in general
to continue to be elevated,” Morgan Stanley said in the filing.
“Changes in accruals from period to period may fluctuate
significantly given the current environment regarding financial
crisis-related government investigations and private litigation
affecting global financial services firms, including the
company.”

AIG was bailed out by taxpayers in 2008 after the New York-based insurer was overwhelmed by losses on property bets. Matt
Gallagher, a spokesman for AIG, declined to comment. Charlotte,
North Carolina-based Bank of America has disputed the insurer’s
claims.

Morgan Stanley helped advise the U.S. government on its
rescue of AIG and was one of top underwriters as the U.S.
divested its majority stake through public offerings. It also
helped AIG dispose of a stake in reinsurer Transatlantic
Holdings Inc.